Subscribe

The basics behind a budget that works

by Tsh Oxenreider

Tsh is the founder of this blog and is currently traveling around the world with her husband and 3 kids. Her latest book is Notes From a Blue Bike, and believes a passport is one of the world's greatest textbooks.

I used to get easily frustrated when I tried my hand at a family budget. I’d never be able to predict the right amounts for the right line items, and out of sheer frustration, I’d quit before we’d even give the poor budget a decent shot.

It wasn’t until several years of failed budgeting attempts later that I discovered that the reason my method wasn’t working was because I was trying to create a perfect, master budget. I was hoping for some pie in the sky, magical budget that represented what I wished reflected family finances, instead of it being a tool that actually worked for us.

In short, I wasn’t creating a new budget each month. I was creating a random master budget for an entire year.

What is a budget?

A budget is simply telling your money where to go. It isn’t restricting you from having fun, nor is it sentencing you to spend money where you’d rather not. Your money will already be going somewhere. Planning ahead with a budget is taking charge of your finances, not letting your finances be in charge of you.

Why a monthly budget?

A monthly budget — or bi-monthly, if that works better with your family’s pay schedule — is so important because your financial needs and goals change all the time. This was true in our life back when I was shooting for a master budget, but I wasn’t admitting it. I was unintentionally thinking that the eventual goal was to have a whole year of predictable months, with the same needs, the same amounts for each bill, and with no unexpected expenses.

But what about those months when the quarterly insurance premium is due?

Or when the electric bill is higher in the summer because of air conditioning?

Or in February, when we have a lot of family birthdays?

A monthly budget addresses these things, and it allows you the flexibility to shift your money around as needed. I prefer using a zero-based budget method, where our income minus expenses always equals zero. Every dollar has a name.

Breaking it down

A budget should more or less have the same categories each month, even if you don’t always fill those categories with money. The main types of categories you should have are:

Income

Regular expenses, and

Irregular expenses

Make sure and account for any type of income, not just your paycheck. As an example, our family’s categories under “income” are:

paycheck

book advance

gift received

blog

surplus from previous month

work advance, and

work reimbursements

Again, very rarely are these all filled, but it helps jog my memory as I plan each month.

Your regular expenses are pretty much what you think of as expenses — utilities, rent or mortgage, groceries, entertainment, and the like. If you’re following Dave Ramsey’s plan, like us, you’d also include your allotment for whatever step you’re on — your debt snowball if you’re on step 2; contribution to savings if you’re on step 3.
And don’t forget free spending money. My husband and I intentionally give ourselves a set amount of cash we each get to keep in our wallets and spend on whatever we choose. It’s not much money, but it’s enough for a coffee here and there, a magazine when we see one, or whatever. It curbs your appetite for random spending, and it helps you keep to the budget.

It’s important to plan for irregular expenses as well — these are funds that you don’t need each month, but you want to set aside for them regularly so that you have enough cash when you need it. These are also called sinking funds. Some of our family’s sinking funds are:

books

Christmas

clothing

gifts and holidays

haircuts

medical (insurance deductible)

vacation

work expenses

In a sense, these become regular expenses because we set aside the same amount each month for these items. At the beginning of the year, we decided how much we’d spend for Christmas, and simply divided that number by 12. Each month, we have our checking account at Capital One 360 automatically withdraw money into separate savings accounts for these different items. Once it’s set up, it’s a no-brainer — we save each month for Christmas without thinking about it.

A word about giving

We take off funds for giving from the top. It’s not even in our budget, because we don’t budget it at all — it’s gone before we allot the remaining money into different categories. We don’t see it as our money, we see it as God’s, so for us, we automatically take a set percent off our income and put it into a savings account called “giving.” From this, we tithe to our church, and we give according to needs and desires that arise.

Planning Your Budget

If you don’t work from a budget, I encourage you to do so. In a way, you already are, you just may not be aware of it. Your money’s going somewhere; writing it down into a budget form simply allows you to premeditate where it should go. A few tips as you prepare:
• Use a tool that works with your style. I use Pear Budget, and I like it so much because it doesn’t have things I don’t need. It’s simple. A pen and paper might be more your style — it doesn’t really matter.
• Don’t expect it to work perfectly the first time, or at any time. This is an easy mistake, and one that can cause you to think you’re doing something wrong. You’re not. It takes awhile to get the hang of knowing how much money to allot for different line items, and there are plenty of times when your needs change mid-month. Stay flexible.

• Work with your pay periods. If you get paid more than once a month, perhaps it’s easier if you create a different budget for each paycheck, setting aside a percentage for those monthly bills. Do what works for you, so that you’ll do it.
• Don’t be under-specific, but don’t be too specific. It’s easy to have a subcategory for every single need. It’s also easy to generalize. Find a happy medium.

• Account for everything you’re spending, and give it a name. Don’t have a category called “miscellaneous.”

Have you drafted your July budget yet? What budgeting system works for you and your family?

Like This? Subscribe for free and have it delivered to your inbox.

Comments

Tsh, thanks so much for this post! I am currently doing a fortnightly budget (because my husband and I get paid fortnightly) but was wondering whether this is the right thing to do – and your post gave me the validation that I needed.

Do you have an idea for how to keep track of cash that we spend? For example, there are shops that won’t take a credit/debit card and for those we both carry cash in our pockets and sometimes we also need to pay a little amount and they won’t take a card as payment. All that cash goes “unnamed” in our budget. Do you have an idea for that?

We keep a little scrap of paper in our wallets or purse, and jot down every little expense. This acts as a “receipt,” and I just add them in when I update our accounts in Pear Budget every week or so. We simply jot down the date, the amount, and the category it would go in — “groceries,” “household supplies,” etc.

At one point, we even had a master sheet right inside the front door, where we’d transfer all those numbers of the little scraps of paper onto one sheet. Felt like it was an extra step we didn’t need.

Emma and any others with good ideas,
How are you handling your monthly bills with biweekly budgeting. I am having a terrible time since most of our bills are monthly and my husband and I get paid everyother week. I can’t figure out a system at all — monthly certainly isn’t working. Thanks!

I get paid bi weekly and my husband gets paid 1st & 15th. The two checks usually come close enough that I split the month and call it bills due 1st-14th, & 15th – 30th. eventually, i arranged w/ the companies to have the bill due dates to be close to evenly split per half of the month. and then the things that I am saving for I split per 2weeks, for expenses like food, gas, fun I have a per week figure in my head but put it in the budget for two weeks. Sometimes I have to be cautious to not spend my check early becuase it can come up to a week before DH’s on 1st or 15th. If I get a check, I enter it then I also enter all the estimated expenses for that time period so I know exactly how much we need when the DH’s check comes in. I think this helps me not spend money before the bills are actually due.

For me it’s more complicated, because apart from monthly bills I get bi-monthly and quarterly bills, and then there are seasonal changes in electricity and gas usage! So normally I estimate the amounts based on last year’s bills of the same season. So for example I’ve just paid an electricity bill, the next one is due in 2 months, that’s 4 payment periods, I just put 1/4 of the estimated amount aside from each paycheck, that’s how I get to the next bill with enough money to pay. I hope that helps.

We opened a second savings account just for bills. Then, every two weeks then my husband gets paid, we transfer half of our total monthly bill amount, plus enough extra to cover the irregular bills when they come, into that checking account. When there’s a third paycheck in a month, twice a year, we have that biweekly bill amount that we can stick directly into savings or use to pay off debt. The extra checking account wouldn’t be necessary now that we’ve figured out a budgeting system that works for us, but it helped a lot before we got to that point.

I’ll just mention here also that the other three key things to making our budget work, besides balancing biweekly paychecks with monthly bills, are the idea that if you must go over in a certain category you just transfer from another category, using sinking funds, and giving up on the idea of creating a monthly budget. Now, we just divide every paycheck into the different categories when we enter it in our budget program. Other income, such as a refund on a returned item goes right back into the category it came from. Then instead of the budget looking like we have the whole month’s worth of grocery money on the 1st, it doesn’t show it until we actually have it. Since we figured out our system a few months ago, we’re actually following a detailed budget for the first time ever.

Thanks for mentioning giving. Sometimes I look at what we’re giving away and think it could be better spent elsewhere. However, I strongly believe that it is because of our giving that when we find ourselves in need, a rebate check, or insurance adjustment check always seems to show up in the mail.

Great advice for those starting out! We’ve been doing a similar budgeting system for years now (monthly budget, sinking funds, etc) and it has kept us debt-free and enabled us to use cash for major purchases and expenses (purchased a car, hospital bills).

Give yourself 3-6 months of budgeting to get the kinks worked out of your system. The cash “envelope system” for basic expenses (putting a set amount of cash into an envelope each pay period for, say, groceries) is simple and easy to track when you’re first starting out. Be flexible, but more importantly, be consistent! My husband and I still have a quick “business meeting” at the beginning of each month to check in and make sure we’re on track with our goals and our spending.

Lots of people think that budgeting is restraining and constrictive, but when you actually get the hang of it, it is liberating!

I wrote about our envelope system quite a while ago here. I’ll probably write another post about it soon, answering some basic 101 questions to going this route. If anyone has questions about this, let me know.

Anyway my husband and I had a rough fall 2008. Big unexpeted bills kept on coming and we had the most poor xmas ever, but we managed.

On newyearseve I found out that I’m preagnant ( 1 child ), and the moneysitiuation scared me. We now had to buy alot of things for a baby, but how?

I went looked through my statement to see where all our money went on a month. Found out that we spent way to much on food. We spent more than $1200 a month 2 people. We both eat lunch at work, so we only have to buy for 2 meals a day. And we where eating out one or two times a week, spending $500 a month.

I had to change that road, I used to buy extra things that we didn’t need, candy, dvds etc. when I was shopping for food 3-4 times a week. No wonder I spent so much. So I started buying food once a week, instead of buying 3 or 4 times a week, made a plan for our meals, and made a rule that we could eat out, only 1 time a month. I now buy all the basic things I can get in a cheap supermarked and big portions of meat at the butcher. We went from $1200 a month on groserys to $400 a month.

I have saved the $800 every month since janury 2009. We have just brought a new sofa $1200 CASH, things for the baby $2500 CASH, I just love the feeling paying CASH. I don’t have to think about how we get throgh the next month because I havn’t spend money I didn’t already have.

Years ago, I became a volunteer budget counselor through Crown Financial Ministries. This helped my husband and I while we were getting out of debt from student loans and credit cards. I learned so much!

After we were “freed” from the debt, we were able to pursue our dream of working full-time with a humanitarian organization called Mercy Ships. It’s wonderful to have options, and not feel bound by extra financial obligations.

This is something that has been a struggle in our marriage. I have offered to work out a budget, monthly or not, and my husband kindly says that he’d rather do it. I think that if something goes wrong he wants to take responsibility. Since he is the one bringing home the paycheck I suppose that is reasonable, but it is also a good bit of stress on him, which is why I’d like to take a crack at it.

Your post is always so helpful…what a blessing your insight can be. We too believe that our finances are God’s money that he has shared with us but I am always looking for ways to be a better steward of what has been entrusted to us. We work with a pen & paper budget now but would love to start sinking funds and an envelope system. I’d love to know more about how your envelope system works. Thanks for sharing! :o)

When my husband and I were still in my dating phase I remember setting up a “one size fits all budget” Then when something came up it would all fall apart! Now I use Excel and set up the budget every January – then every month I tweak it for what our bills are that month… July’s budget has a much larger Electric Bill than January, but our Rent/mortgage went down after we bought a house. With the spread sheet most of our bills already have a spot, but if not it is easy enough to just add or delete a row. Any “extra” money goes immediately into our debt snowball at the end of the month, but any additional income – (tutoring, e-bay, mystery shopping, ect..) goes on a debt the second it arrives in our accounts!

As Marisa commented, people think a budget’s limiting. But, like she said, it’s actually really freeing. One thing I like to say (Sarah thinks it’s cheesy) is that budgeting isn’t about spending less on the stuff you want, it’s about spending more on the stuff that matters. A budget helps you be in control of the situation.

As Claudia mentioned, food expenses are often the #1 area where people’s actual spending is out of alignment with where they think their spending is. I hear — all the time — from people who are shocked by how much they’re actually spending on dining out. It’s a great place to look for potential savings when you’re trying to free up money for other things.

How great that you posted this today!! My fiance and I just finished planning our July budget LAST NIGHT! We are getting married in August and went through the FPU (Dave Ramsey) class this Spring. We are so excited to announce that we are $1000 away from having a fully funded (3-6 months) emergency fund!! By the time we get married we will be on baby step 4! It still amazes me when we do the budget that we have plenty of money here and there to do what we want with. Vacation fund, fixing up the house fund, Christmas/gifts fund, personal money (like you said you use for getting a cup of coffee, magazine, etc.). Our budget will always have kinks but we are so grateful we took Dave’s class and know that if we live like no one else now, later we can live like no one else.

We didn’t have a written budget until a few months ago, but I was on a goal to make one. We are often in the position of too much month and too little money, so I’m now tracking where all our money is going. It is interesting to see where we waste and where we can find money to pay down some bills.

Hey Tsh,
Great post. I often struggle with budgetting when we move about so much because it seems like it takes a bit to figure out how much things cost in each place again. But still important. Thanks for the reminders.
Also, I saw you featured in BH&G this month! Congrats on being recognized!
Blessings,
Shilo

You seem to love Dave Ramsey (he’s awesome), but I was wondering how to handle tithing. Do we Tithe first (like the Bible says we should) and come up short on bills every month, or do we pay bills first and save for our Emergency Fund??

My DH and I have lived outside of our means for years now, and we are trying to correct all of this (decluttering, stop eating out, spending less, envelope system, etc.). Your blog is helping put a “real” spin on things. THANKS!!

I know my husband and I really struggled off and on with this our first years of marriage, because we really didn’t make much (and we still don’t, haha) But now our tithe comes straight out, first. I’ve done it both ways and life is much easier now. (And yes, we still have tight moments. It helps me trust in God more.)

I think it matters where your heart is. Tithing is not a heaven/hell issue, but I’d rather live on 90% blessed than 100% not. God has blessed my family beyond what we could ever save. It is impossible to out-give God.

I stole this idea from a friend, but we keep a blessing book to record and remind us of all the things God blesses us with.

Steph,
You said it much better than I was trying to at the wee hours of last night. Very well put.
I also struggled with tithing when I first got saved as I was single at the time with debt. I now have the faith that God wants me to have and I know he will take care of us since we are faithful to him.
I love your blessings notebook. I think I will steal that idea as well because I know that is something we “sinners” sometimes take for granted – all the wonderful things He has done for us and the book would be an uplifting tool.

This is such a great reminder Tsh. We have a budget that rarely changes from month to month, and like you – my husband and I get free spending money. It isn’t much, but it is there and actually is quite fun to see how creative we can be with a small amount of money!

Thanks, I would really like to get ahold of our finances and I think that Pear Budget may be the perfect budgeting tool to get me on the right track. This was a great motivational post as we start the month of July. Thanks!

I have a question; how do you decide how much free money or allowance each person should get each month? I have a hard time with this because I think “that could be going towards savings!” or some other such thing.

Yes, Tsh, I just finished our July budget this morning – and I have you to thank! I used to strive for the perfect, master budget all the time and it never worked, so we always had money issues in our marriage. Ironically, I started reading your blog in early 2008 when I was pregnant, and we had our first child in July 2008. Lots of factors played into 2008 being a horrible year for us financially, and after having a baby I was determined to set us on a better course. I remembered reading about envelope systems on your blog, so I came back to it and then started reading through all of your money posts. Through your easy-to-understand descriptions of your family’s system, I was able to devise a budgeting system that finally works – for US! For the first time, my husband and I are united in our finances. It takes so much pressure off, and I think we are better parents because of it, too.

We are huge fans of Dave Ramsey. We even went and saw him in May! Our family has been on a budget for 2 years now. We are slowly but surely working on our debt! You shared great tips. I remember years ago trying to make a budget and it would never work. Now every pay period my husband and I sit down and give every dollar a name!!

We have different amounts of “fun money”. It amounts to about 3 percent of my take home pay each year. I think anything less than 5% is plenty. I’ve seen some budgets of 60-30-10 (60% needs like basic rent and food, 30% wants like better housing and food, and 10% fun money), but I found it really hard to justify spending ten whole percent on Molly fun. Also, while my family does not practice any organized religion, we do regularly donate to our local animal shelter, which is the charity closest to our hearts. We recently decided to up our donation, as my salary increased a few months ago – we’ll be able to “adopt” and take care of one cat for a year!

Just started using PearBudget, and I love it. In particular, I love that I can have broad categories, and can funnel things into more specific tags. AND, that I can use tags to span categories. For example, I can track all expenses related to a specific car, even though I have three auto categories (car payments, transportation (for tolls, gas, etc.), and maintenance) using one tag. This is going to be very helpful when we look at buying a new car – how much did it cost to own the old car?

VERY cool tool – thanks so much for bringing it to my attention in one of your previous posts!

I would love to have a budget but we do pretty well without one and I have one of “those” husbands who refuses to have a budget or go by one since “he’s” the money maker. Even when I draw one up he won’t go by it. So for now I just try to save save save every where I can

we’ve had a pen and paper budget for years. i kept reading about pear budget. i was scared of the envelope system. but i decided to give pear budget a try and set up for their 30-day trial. i fell in love. i now have a year subscription. what i love most about pear budget is that you’re held accountable. you know you have to turn those receipts in and post them. you know at the end of the month that you will see how much you ate out, how much you spent on groceries, etc. we are on our second month. things have already changed drastically. thank you so much for your wisdom, your knowledge, and inspiration.

Great suggestions! You must be a Dave Ramsey fan too. I heard you mention him in an earlier blog. His methods have changed our life. Great info. Especially love your part on giving. It’s not ours to begin with! Thank you for this great article!

You’re giving me just the kick in the tail end I need to get a budget going!

We went from a two income to a one income family about a month ago, and I thought with my new role as a stay-at-home mom I’d be able to handle our outgoing cash flow much more easily. But I’m finding that without a pre-planned budget, our money isn’t truly managed as well as it could be. Thanks for the advice — I need it!

I love Dave Ramsey! I haven’t been able to get my hubby to read his Total Money Makeover book yet nor to totally get on board with the things he teaches, but I personally 100% agree with what he says.

Oh, and we have never been able to stick to a budget.

For starters, we have VERY irregular income and over the past few years, we have acquired WAY too much debt. I have desperately wanted to snowball our way out, but have only been able to pay off a few things…and super duper slowly at that.

Because our income is so irregular, I have found it quite challenging to find a budgeting plan that works for us. However, I’m always up for advice and suggestions!

Thanks for the tips here! This is a good article and one I’m def sharing with friends~!

My husband and I attended the Dave Ramsey Financial Peace Class at our church 2 years ago. It totally changed our lives! GO Dave Ramsey!!!
We have paid off 25,000 in debt and the one thing that has kept us going is our budget! We learned how to create a plan for our money, it was not easy at first and it took quite a few months to get the hang of budgeting, but we did it.

We also still use the good old fashioned envelope system, where we put CASH for certain categories in an envelope labeled for that category.

Hi Now what if you are way behind, how do you budget for up coming month and to pay off what you are behind in. I am really struggling for many years now at budgets being a single mom and being alittle loose with my money. Help!

very late post, good article overall. Why do you not have a small “misc” catagory? there is no way anyone can or should predict EVERY expense, and this keeps one from raiding savings over minor details. Extra at the end of the month then goes into savings. Just watch where the cash goes, and make sure there is not a missing irregular catagory.

Thank you for this post. My budgeting abilities get better each month, but it has been the variables that make me uptight–a sick pet; tires wearing out, etc. This post helps me relax a bit because it’s normal for things to crop up.

I tried looking at ING, but was alittle confused. Is it true you can only have one checking account with them? Do you have unlimited savings acounts? When you get ready to spend, do you just transfer $ to brick & mortar bank?
Thanks,
Marcy

To Marcy: ING can be linked to multiple checking accounts AND they now offer checking as well, although you need to link to a brick&mortar bank first still I believe. I currently have 2 savings accounts, 2 CDs and a checking account with them.

Just start with the solitary savings account, maybe branch into their checking (you don’t get physical checks, you can either have them send paper checks, or do everything electronicly. I mostly just use my debit card that’s tied to the checking account.) Add more savings accounts as objectives come up. (Emergency account, short term savings, house downpayment, etc)

We have a budget with 7 or 8 categories in it (it’s on the other computer, or I’d just look it up). Included in those categories are car savings (for when we buy), a food/household items budget, insurance/registration, utilities, student loan, and mortgage. We overpay every category every month to build up for the unexpected. Doing this monthly allows us to make approximately 10 extra payments on the student loan and 2 extra on the house (which has the lowest interest rate). Every other category will have buildup at the end of the year that will be transferred to savings. We also budget these things at their highest cost instead of their average cost; the end of year savings are worth more than the extra flexibility now.

Wow, what a great blog and awesome replys. Our family combined Crown Financial Ministries ideals with Dave Ramsey’s six years ago and we’ve been on a budget ever since. I am a SAHM with children ages 3,4,5 and 7. My husband is military and travels often. We have a year’s worth of income in investments we can get to easily. We paid our $300,000 home off in 3 and 1/2 years, before I quit working, 5 years ago.
We still track our spending, using an index card in our wallets and then writing it down in a notebook when we get home. We use the cash envelope system too. We work together and have a monthly meeting to set the next months budget. If something comes up in the middle of the month we call and emergency meeting and figure out where we can get the money we need from. We teach the Financial Peace University in our little town.
I agree with the previous posts. Tithing first allows you to fully experience God’s blessings for your family. We tithe our 10% to our church’s general budget first and then an additional 5% to special church offerings, Compassion International and other charities and organizations that we support. We haven’t always been able to give the other 5% but God has provided it.
There are tons of ways to budget the key is to find the one that works for your family and don’t give up.
.-= Michelle´s last blog ..How Much Money Should I Spend in each Category? =-.

Hi:
I just recently found you website. Thanks for the helpful info. on getting out of debt. My husband and I have a small ag. related business which has had reduced income due to weather. My husband pretty well handles the money matters in this regard. I knew things were tight but until recently I had no idea how much debt we have. Please pray for us and keep the advice coming.

i have been trying to live on a budget for about 2 years and still haven’t found a method that works for me. i think your post is the answer. i love the idea of budgeting around paychecks. so inside of planning a monthly budget, i could plan budgets based on my paychecks.
.-= from the desk of …me´s last blog ..All About Me =-.

love this post.
i checked out pear budget and really want to use it, but my husband prefers mint.com (which is free), so, i might have to run it by him before i switch.

my question for you is where do you keep track of your “Dave Ramsey debt snowball” amounts…i hear that you have a “category” for it to track your spending on it in your budget, but where do you keep track of how much you owe and how long it will take you to pay if off, etc? do you have it on a separate paper or excel spreadsheet? that was my only issue with Pear is that it is only based on your actual budget and expenses and doesn’t seem to also track debt status.